Employer Choice Agreements
KiwiSaver may seem like a minefield for employers to understand and administer. To help you understand your obligations and options under the KiwiSaver Act please read through these topics:
EMPLOYER RESPONSIBILITIES
Your obligations as an employer include making sure KiwiSaver is available to all your employees who want to join, make deductions from their pay and forward these deductions to IRD with your PAYE schedule.
KIWISAVER ENROLMENT
Employers have an obligation to allow employees to join KiwiSaver via the workplace. There are three ways employees can join:
1. Automatic enrolment
This applies to all new permanent employees (including part-time) and requires employers to automatically enrol them in KiwiSaver and start deducting contributions at the rate of 2%, 4% or 8% from their gross pay from the second week of employment. Employees choose which rate they contribute at. The minimum employee contribution rate will rise to 3% from 1 April 2013.
Employers also need to complete an IRD form called KS1 for each new employee and send this to IRD to register the employee.
The employer must also provide the employee with the IRD Employee Guide KS3. This provides the employee with information about KiwiSaver and what their rights are.
A new employee can opt-out of KiwiSaver as long as they complete the IRD KS10 form and return it to IRD before the end of their eighth week of employment. (Note this is the employee’s responsibility, not the employers).
All of the IRD forms mentioned above are available for free download from IRD’s website. http://www.ird.govt.nz/forms-guides/keyword/kiwisaver/
Once the opt-out has been processed, IRD will refund all employee contributions directly to the employee.
2. Voluntary enrolment
Existing employees can also join KiwiSaver by completing the IRD KS2 form and giving it to the employer to start making deductions from their next pay. Employers need to complete an IRD form called KS1 for each new employee in the scheme and send this to IRD to register the employee.
Employees must choose a contribution rate of either 2%, 4% or 8%. The minimum employee contribution rate will rise to 3% from 1 April 2013.
The contribution rate can be changed by the employee once every three months, or more frequently if the employer allows.
If an employee opts in they cannot opt out and must continue to make KiwiSaver contributions for a minimum of twelve months before they can take a contributions holiday.
3. Active choice enrolment
An employee can join KiwiSaver directly with a scheme provider of their choice. The scheme provider will notify IRD that the employee has opted in to KiwiSaver. IRD will then notify the employer to start making KiwiSaver deductions from the employee’s next pay. The employer is obligated to act upon this instruction.
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WHAT TO DO WITH KIWISAVER CONTRIBUTIONS
1. Filing to IRD
Employers have to forward employee contributions to IRD. This is done with the PAYE Employer Monthly Schedule (EMS). The new EMS forms have extra columns added for both employee and employer contributions.
2. Payment
The contributions are paid to IRD with the PAYE. IRD are responsible for sending the contributions to the KiwiSaver scheme provider.
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EMPLOYER CONTRIBUTIONS
Currently employers have to contribute to their employees' KiwiSaver accounts, 2% of the employee’s gross wages or salary. The employer contributions to KiwiSaver are subject to employer superannuation contribution tax (ESCT). The employee has to contribute a minimum of 2% to qualify for the matching employer contribution.
The minimum employee and employer contributions will rise to 3% from 1 April 2013.
There is no obligation for an employer to contribute to an employee’s KiwiSaver if the employee is on a contributions holiday.
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CONTRIBUTIONS HOLIDAY
After an employee has been contributing for a minimum of twelve months they can apply to IRD to take a contributions holiday for any duration between three months and five years.
IRD will send the employer a letter informing them of the employee’s request to take a contributions holiday and the duration. The employer must comply with this request and stop making KiwiSaver deductions from the employee’s pay. After the contributions holiday has expired, the employer must reinstate the deductions unless the IRD advise otherwise.
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KIWISAVER PROVIDERS
1. IRD default providers
It is up to the employee to choose a KiwiSaver provider. If they do not make an “Active Choice” they will default to one of the six IRD default providers.
2. Employer Choice provider
An employer can voluntarily choose a provider for their business. This does not mean that employees have to use this chosen provider. However, if the employee does not make an “Active Choice” they will "default" to the employer’s chosen provider, instead of the IRD default schemes.
If the employee "defaults" to the employer’s chosen scheme, the employee can change providers at a later date by making an Active Choice.
If you‘d like to set up an Employer Choice agreement with GMK, fill in our form.
3. Providing investment advice
Employers need to take care not to provide investment advice to employees to avoid being held responsible for any negative consequences that may arise from such advice.
If an employer chooses a provider for their business they must make sure that any employee who joins KiwiSaver via the workplace is given a copy of the scheme provider’s Investment Statement.
The employer must explain that the employee will "default" to this scheme only if they do not make an Active Choice and choose their own provider. It is important to stress that KiwiSaver is designed for the employee to make their own choices and that they do not have to rely on the employer to make decisions on their behalf.
The employer must not coerce the employee to join a particular KiwiSaver scheme or provide the employee with investment advice or opinion. If the employee asks for more information about the company‘s chosen provider it is appropriate for the employer to direct them to the scheme provider or an Authorised Financial Adviser (AFA) to make their own enquiries.
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EXISTING WORKPLACE SUPERANNUATION SCHEMES (NON-KIWISAVER)
If an employer already operates a work-based superannuation scheme there are a number of things to consider now that KiwiSaver has come along. Such as, whether to keep the existing scheme running, wind it up, or make it KiwiSaver compliant or exempt.
Employers are welcome to contact us on 0800 427 384 during business hours to discuss options and get some independent advice.
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Congratulations, you have successfully completed KiwiSaver for Employers 101!
Need more help?
If you have a question or a suggestion for a topic not already covered here, please email us and we’ll get back to you with a response.
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Employer Choice Agreements
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